The real estate market received a large - and very welcome - legal stimulus on last July 11 due to the conversion of Provisional Presidential Decree No. 759, in effect since December 2016, into Federal Law No. 13,465/2017.

In the midst of many criticisms of its approach to some issues, especially those related to land regularization, the fact is that the new legislation has covered all at once a series of issues that may affect contracts and business transactions involving, directly or indirectly, urban or rural properties.

The prospect of practical results is quite positive, especially the adjustments to the concept of out-of-court procedure for adverse possession, the increased speed expected in land regularization procedures, improvement in the execution of fiduciary alienation guarantees, and transactions involving the direito de laje (“slab rights” i.e., the severability of titles when one or more floors are added as an autonomous unit to a previously existing dwelling).

It will be important to monitor judicial interpretation of these provisions and the practical application of these new instruments and rules in market transactions. Undoubtedly, the vast majority of the changes were designed to boost the real estate sector. The expectation is that computerized systems, safer procedures for the execution of security interests in real estate, and more effective procedures to facilitate real estate regularization will bring in very favorable responses.

Out-of-court procedure for Adverse Possession

The amendment to the Public Registers Law (Law No. 6,015/1973) promises to leverage the use of out-of-court procedures for adverse possession in Brazil. Initially envisaged to relieve the Judiciary through non-litigious proceedings, out-of-court procedures for adverse possession had been instituted with a requirement that caused a major bottleneck: express consent of the holders of real property rights registered in the recording of the property.

After being in effect for a little more than a year without having seen much application in practice, the legislature seems to have realized that this requirement is incompatible with acquisition by adverse possession. Except in cases where it is difficult to obtain documents to complete an already negotiated sale and purchase process, it would be difficult for people to agree to dispose of a right in favor of a squatter.

In this sense, the new law provides that holders of real property rights will still have the opportunity to express their opposition to the proceeding, but, if they do not submit an opposition, they are presumed to agree with the procedure. If they oppose, the procedure will be referred to the Judiciary and will follow the general procedural path of adverse possession. Also, in order to guarantee greater efficiency in this process, the new law does away with the consent of the owners of the contiguous autonomous units and, if the contiguous property is a condominium building, the consent of the condominium association will suffice (instead of the consent of all the owners of all units).

Fiduciary alienation of real property

Considered one of the most efficient forms of real estate collateral in business transactions, the fiduciary alienation underwent a small reform and "modernization", with changes that promise to boost out-of-court foreclosure and avoid procedures aimed only at delaying the public auction or at avoiding payment of the guaranteed obligations.

Among the novelties, we highlight the establishment of the market value appraised by the municipality (for urban properties) or the value of the bare land (for rural properties) as the basis for sale in the first out-of-court auction; the recognition of validity of notices given by means of a building condominium posting; and the possibility of communicating dates, times, and locations of the auctions by means of an electronic address in the contract.

For the benefit of the owner, the rule establishes preemptive rights in the acquisition of the property until the date of the second auction. The legislator also clarified that the creditor could also charge a legal penalty in the event of refusal by the owner to vacate the property, covering the period between the consolidation of the property and actual vacancy.

The most celebrated change, however, relates to real estate financing transactions. It was established that discussions with respect to the terms of the contract or the enforcement procedure could no longer impede the continuation of the auctions and should be resolved in damages. This should put an end to the dilatory actions that are used to hinder real estate foreclosures. It is important to note, however, that, according to the text of the law, such improvements are restricted to "real estate financing transactions."

The legislature did not enter into the area of ​​fiduciary alienations in guarantee of loans other than real estate financing transactions. In this sense, it also did not slip in a provision to avoid automatic extinction of secured debt when the sum offered in the second auction is below the sum of the principal of the debt plus charges and expenses (provided in paragraph 5, of article 27 of Law No. 9,514/1997). This provision is clearly focused on the real estate financing system, but its applicability to other types of debt generates much discussions.

Land regularization

The issue of land regularization is controversial in Brazil. MP 759 made the rules for the regularization of rural properties more flexible and, during the process of its conversion into law, gained the nickname “the fraudsters MP" in the media. This is because it increased the area limit subject to regularization in occupations of rural lands owned by the Federal Government in the legal limits of the Amazon from 1,500 to 2,500 hectares.

As for the urban areas, that are less controversial, the new legislation has a clear focus: to facilitate the regularization of informal urban centers and to guarantee legal certainty for property owners located in these areas. The main tool will be Reurb, which constitutes a more flexible regime of urban land regularization of social interest aimed at low-income populations (Reurb-S) and, for other cases, land regularization of a specific interest (Reurb-E).

The greatest flexibility, undeniably, is the possibility of not applying some of the general land subdivision rules contained in Federal Law No. 6,766/1979, such as the exemption of requirements regarding the minimum size of lots to be regularized or flexibility of the percentage and dimensions of areas intended for public use.

Direito de Laje ("Slab Rights")

In the real estate legislation package, the rule also establishes a new real property right in the Brazilian Civil Code. This is the “direito de laje” or “slab right", a real and autonomous right to the upper or lower surface of a base-construction (the "slab"). It will be subject to a separate recording with the Real Estate Registry, and may be sold to third parties and even be subject to a security interest.

A new slab may be constructed over the slab. That is, the slab holder may assign the surface of his construction for the constitution of a new real property right, to third parties, provided that he obtains consent from the owner of the base construction and from the holders of the other overlapping slabs, if applicable. In the event of sale of the slab, the owner of the base-construction slab is granted a preemptive right and, subsequently, the owners of the other overlapping slabs, if any.

Collective organizations: condominiums and closed subdivisions

In relation to the regulation of developments for collective use, the law expressly allows condominiums by lots, controlled access housing subdivisions, and simple urban condominiums.

The first is composed of private lots with exclusive ownership and private common areas for the use of all condominium owners, unlike a common housing subdivision, where the common areas are donated to the municipality and therefore become public.

The controlled access housing subdivision, in turn, is nothing more than a “closed housing subdivision." According to the new regulations and subject to the supplementary regulations of the municipalities, it will only be partially closed, as it is prohibited to prevent access to properly identified or registered non-residents.

Condominiums by lots and the closed housing subdivisions were already in some manner allowed and regulated, case by case, but not expressly in federal legislation. The big novelty in relation to this topic is the simple urban condominium, applicable to the constructions of houses or rooms belonging to the same property. In the process of conversion of MP 759 into law, this provision was restricted to situations of urban land regularization of social interest or specific interest. In the final phase of the discussions, however, the legislator thought it best to expand it to any real estate situation.

With the simple urban condominium, it is expected that regularization of situations of division of autonomous units built on the same property will be faster and less bureaucratic. This will be possible with the delimitation of the common areas (apart from each private autonomous unit, which will have its own recordings with the Real Estate Registry Office) and with the individualization and independence of the private autonomous units in relation to the other units expressed and recorded with the Real Estate Registry Office.

Properties owned by the Federal Government

The legislation dispensed with the prior list of properties that can be acquired by individuals or companies, expressly provided for in the regulations in force since the end of 2015 as a necessary requirement for acquisition of federal owned properties. The objective was to facilitate transactions with real estate owned by the Federal Government that are not tied to a public purpose, including marine land. Any interested party may submit a proposal for acquisition to the Federal Government for properties falling within this category.

Other relevant novelties include the use of the water surface for nautical structures installed by the ocean, rivers, and lakes in the Federal Government's domain. The new legislation establishes a discount for those who occupy these areas in an irregular manner and request their regularization by December 31, 2018. The discount will be 50% of the amount of the public price for the private use of the area relating to the period prior to December 22, 2016. This provision may affect developments that use public water to operate, such as private port terminals and cargo transfer stations.

National Recording Code (CNM)

Finally, Brazil will have a single and unified real estate registry numbering system for properties located in its territory. The new law establishes the National Recording Code (CNM), with exclusive numbering for each real estate recording. It is also expected that the Electronic Property Recording System (SREI) will be effectively implemented at the national level. The implementation of the CNM still depends on a regulatory act of the National Judiciary Oversight Board of the National Council of Justice (CNJ).

Abandonment of Property

The new law regulates the procedure for collection in the event of abandonment of property. The absence of a response by the owner against the proceeding will be interpreted as agreement. In order for the property collected to meet the social objectives for which it is intended, the municipality or the Federal District, as the case may be, may make the investments necessary directly or through third parties. These properties may be assigned to the Reurb-S or to civil entities that have philanthropic, charitable, educational, sports, or related purposes.